Cendant Can't Move Lending Arm

One thing fueling speculation about a deal is Countrywide's goal of controlling 30% of the nation's mortgage origination market by 2008. The company currently has a 13% market share.

"They did make some pretty aggressive targets, and to hit them, you could see why they might have to make a deal," said Paul Miller, an analyst with Friedman Billings Ramsey, who rates the stock as his top pick in the sector. "At the right price, a deal would make sense."

Adding Cendant's mortgage business would be a big boost to Countrywide, which currently is the nation's third-largest home lender.

Michael McMahon, an analyst with Sandler O'Neill, said the deal would complement Countrywide's business, although he wouldn't call it a "blockbuster." McMahon, who has a buy rating on the stock, said he expects Countrywide to be in a position to make a number of acquisitions over the next several months. He expects smaller mortgage lenders to fold their tents once interest rates move higher.

"The motivation for companies to sell is the volatility in the rates," said McMahon.

The volatility in interest rates often leads to boom-and-bust cycles in the mortgage business. Indeed, Cendant has experienced some of that earnings volatility with its mortgage business.

Last year, as homeowners flocked to refinance mortgages, Cendant's revenue soared to $1 billion. But the year before, when interest rates held steady and the economy was still reeling, its mortgage business generated just $480 million in revenue.

>To order reprints of this article, click here: Reprints